How California gave Nebraska ethanol producers a boost — and wind generators too

Source: By Steve Jordon, Omaha World Herald • Posted: Monday, October 1, 2018

Three turbines twirled in the Nebraska wind, turning the village of Fairmont, for a brief time, into a 100 percent renewable-energy community.

More importantly, those General Electric turbines have the potential to raise the value of ethanol made from Midwestern corn by a Fairmont plant and shipped to West Coast markets because of a California law aimed at reducing carbon pollution.

“The less carbon emissions you’re creating, the less fossil fuel you’re burning in the process of making your product, the better off you’ll be,” said Dave Clegern, a spokesman for the California Air Resources Board.

That’s why tiny Perennial Public Power District of York agreed to host its first electricity-generating equipment. Bluestem Energy Solutions of Omaha installed and operates the turbines just south of Fairmont, 61 miles west of Lincoln, at a cost of about $15 million.

When the wind blows, the turbines supply electricity for any user in York and Fillmore Counties, but the wind-catchers are located there solely because of the ethanol plant owned by Flint Hills Resources, a division of Koch Industries of Wichita, Kansas.

The result carries some political irony: liberal Gov. Jerry Brown’s California providing a possible economic benefit to a company owned by conservative brothers Charles and David Koch.

But it’s strictly an economic deal, say the principals involved.

“We have now California policies and models driving economic development in our rural areas,” said Jeff Herink, a vice president of Bluestem, a sister company to longtime Omaha contractor Boyd Jones Construction. “This is actually creating investment back into our rural areas.”

Jake Reint, a spokesman for Flint Hills Resources, said the company hasn’t decided whether to pursue a system of carbon credits authorized by California law, although some of the Fairmont plant’s ethanol ends up in that state.

That decision will depend on many factors, including federal energy policies, Reint said. “There’s potentially some value there. … It’s all pretty situational. We’re driven by efficiency first and foremost.”

The California law, an update of the state’s Global Warming Solutions Act, offers an extra financial incentive for companies to find ways to use less carbon-based energy to produce ethanol. In Flint Hills’ case, that would be the turbines’ “green electricity.”

In 2011, California approved “carbon intensity” standards for transportation fuel. The legal issues weren’t resolved until last year, but now they set carbon intensity values for transportation fuel in the 32 million-vehicle California market. Oregon, Washington and British Columbia are taking or considering similar steps.

Fuel production that consumes relatively low amounts of carbon earns credits that can be sold to producers who use relatively high amounts of carbon. The system is designed to reduce carbon emissions in California by 10 percent by 2020 and another 10 percent by 2030.

Clegern, the spokesman for the California Air Resources Board, said the board’s staff assigns carbon intensity values to all fuels produced in California or brought into the state.

If producing a fuel generates more carbon emissions than a certain level, the producer has to buy credits, making that production more expensive. If producing ethanol creates fewer emissions by using wind-generated or solar-generated electricity, the producer gets credits that can be sold, making production less expensive.

“The rules in place are intended to drive the kind of innovation that will bring those carbon intensity numbers down,” Clegern said.

Installing renewable energy generators at an ethanol plant is one way to reduce carbon intensity, he said. Methane captured from landfills has a low carbon intensity value; pumping oil from the ground and refining it into gasoline has a high carbon intensity value.

“The cleaner your source, the better,” Clegern said.

Until this summer, Perennial Public Power bought all its electricity from Nebraska Public Power District and distributed it to residential and commercial customers in the two south-central Nebraska counties. The NPPD contract allows Perennial to buy up to 10 percent of its power from other users, and that’s where Bluestem came in.

“We know we have a segment of customers that wants us to have more renewable energy in our mix,” said Jamey Pankoke, Perennial’s general manager.

Because of the Flint Hills plant and local irrigation systems and grain dryers, the Fairmont area is the heaviest user out of Perennial’s 8,300-customer area.

When the ethanol plant’s use is down, the turbines’ electricity flows to other parts of Perennial’s system, reducing the amount of electricity it purchases from NPPD. Occasionally the turbines generate enough electricity to power all of Fairmont.

The rate paid to Bluestem is within a percentage point of NPPD’s rate, Pankoke said. Although wind generators have some uncertainty because sometimes the wind stops blowing, there are other advantages because there is no fuel cost.

“There’s uncertainty as to what wholesale (fuel) costs will be five years from now or 10 years from now,” Pankoke said, but the cost of wind-generated electricity is fixed for the next 20 years. That helps even out any rate increases that may occur because of natural gas price variations.

The turbines will help reduce shutdowns of irrigation systems during peak demand times, Pankoke said, and will demonstrate how intermittent power sources such as wind affect the company’s distribution network.

The three turbines can generate 6.9 megawatts of electricity, enough to power about 2,000 homes. Perennial’s peak demand is about 100 megawatts.

The ethanol plant was constructed in 2006 by Advanced BioEnergy LLC of Minneapolis and purchased in 2012 by Flint Hills Resources. The company recently announced it would add systems to produce high-protein animal feed from the grain byproducts that result from production of ethanol fuel.

Flint Hills Resources’ seven ethanol plants in Fairmont; Camilla, Georgia; and Arthur, Fairbank, Iowa Falls, Menlo and Shell Rock, Iowa, buy nearly 300 million bushels of corn a year, making it the fifth-largest ethanol producer in the nation.

Omaha-based Green Plains Inc., which ranks just ahead of Flint Hills in ethanol production, isn’t planning to seek wind-power generators near its plants but has the California carbon standards in mind, said Jim Stark, vice president.

Improving a plant’s natural gas efficiency also lowers its carbon score, he said. And using partially wet (instead of dried) grain byproducts for cattle feed, a practice at Green Plains’ Central City, Nebraska, plant is another method.

“You want to at least meet or be better than the (California) standard,” Stark said. But as for wind-generated power, “that’s not on our priority list.”

Herink, the Bluestem vice president, said other ethanol plants can consider tapping into solar or wind power because of the California law so they can compete for sales on the West Coast.

“There’s a new standard that you need to prove you’re actually offsetting greenhouse gas emissions,” Herink said. “The closer you get to the user, that allows you to make that claim and prove up that model.”

Using small generators in the countryside changes the discussion about the utility industry in rural areas, where large, central generating plants dominate, he said. “There are new options that are becoming cost-effective for retail customers to generate their own electricity.”